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VMware Acquires CloudVolumes for Faster Installation of Apps

Zacks Equity Research

A pioneer in virtualization and cloud infrastructure, VMware, Inc. (VMW) recently acquired a three-year old startup named CloudVolumes. Nothing relating to the financial details of the deal was revealed. The company also did not shed any light on whether CloudVolumes will function as standalone entity after the closure of the deal

Headquartered in Los Altos, CA, CloudVolumes, previously known as SnapVolumes, was founded in early 2011 by virtualization, datacenter and security personnel from VMware, Citrix, Symantec, Microsoft (MSFT), Oracle (ORCL) and Virident. It was formed with an intention to provide enterprise information technology (IT) solutions for instant workload management.

With this acquisition, VMware expects to deliver a mobile app store like experience to any device, which in turn will reduce costs. We believe that this will attract more users to VMware’s virtualization service offerings, thereby driving growth in the near future.

Moreover, the addition of CloudVolumes to its portfolio will also enable VMware to build real-time application delivery across all three of its prime focus areas including software-defined datacenter, end-user computing and hybrid cloud computing.

VMware has made acquisitions in the past too in an attempt to boost its offerings. In the year fiscal 2014, AirWatch was acquired by VMware for a sum of $1.54 billion. In fiscal 2013, it had acquired two companies (Desktone and Virsto) for a total sum of about $289.0 million.

Per IDC, the virtual client computing market is expected to increase to $3 billion by 2015. According to ABI Research, the global market for virtual desktops is projected to grow to nearly $5 billion in 2016.We believe that VMware can immensely benefit from this opportunity.

We believe that a sluggish IT spending environment and intensifying competition from its peers such as Microsoft Corp., Hewlett Packard (HPQ) and Citrix are primary headwinds for VMware. Moreover, VMware’s continued investments in the emerging markets, product innovations and acquisitions are expected to weigh on margins in the near term.

However, recognition of the company by IDC as the #1 in both worldwide cloud systems management software and worldwide data center automation software reflects the strength of VMware’s product portfolio. The company continues to win contracts. Robust international sales and the acquisitions of Desktone and AirWatch will also add to the top line in the long run.

Currently, VMware has a Zacks Rank #3 (Hold).

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